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Real Estate Tax Tips

By Sarah Weldman, Staff Writer

With the real estate market headed for an extended downward swing, at least until 2010, it might be worth brushing up on the ways you can add to your profits and earnings from real estate investments. If you are wondering how to locate some additional deductions, listed below are a set of tax tips and pointers for real estate investors.

Property Sale:

Selling off an appreciated property triggers gains, and if you haven't planned for it, this can end up slicing your returns. There are multiple ways to get a deferral for gains from appreciated sale, such as 1031 exchange or buying into real estate bonds, and you should be poring through your contract to see what options you have open to complete a sale and rollover the proceeds into new investments without feeding the IRS.

Investor Status:

What status you confer on yourself makes a big difference to the treatment accorded upon distribution. Are you a real estate dealer, or an investor? Have you undertaken continuous construction, maintenance and upgrade activities on your property investments? If so, you might possibly qualify as a manufacturer, in which case the I.R.C. Section 199 (Domestic Production Activities Deduction), would be available and offer a previously unused deduction.

Records:

If your records are not methodical and comprehensive, no amount of strategy is going to help you. If you are working under a partnership, maintain three sets of books, to be eligible for allocations. Study and understand your contracts, which will help you offer input regarding your requirements for forthcoming contracts. List and categorize depreciated assets, which will it easier for you to place disparate assets into tax advantageous depreciable brackets.

Second Home:

Do you own a separate vacation home for yourself, in addition to multiple investments in real estate? You can slash your tax bill by enjoying your vacations among the invested properties ( provided its allowed for under your contract ), thus staying clear of the 10% of rented time/14 days ceiling necessary for property to be considered as an investment, rather than a personal residence.

For Landlords:

Consider every single expense and revenue. Don't focus only on the big issues – Mortgage, rentals, insurance, etc. Maintain impeccable records for every financial transaction. Use taxation or accounting software to keep tabs on everything, sort out all incoming and outgoing based on type and generate reports for tax purposes based on the input data. Keep track of security deposits, cleaning fees, utility bills, repairs, travel expenses, management fees paid to consultants and all small purchases.